Does a not-for-profit college that trains optometrists owe Illinois sales or service occupation tax on the prescription eyewear it provides to patients as part of student training?

Plain-English summary

This ruling involves a not-for-profit educational institution ("the College") organized to train optometrists. As part of its curriculum, doctors and students at the College's clinic provide eye examinations, prescription glasses, contact lenses, and non-prescription sunglasses to patients, many of whom are low-income and rely on Medicare, Medicaid, or other assistance programs. The College already held an Illinois sales and property tax exemption and was also registered to collect and remit Retailers' Occupation Tax on its non-prescription sunglass sales. It asked the Department to rule that it did not owe Service Occupation Tax on the tangible personal property (eyewear) it transferred incident to its optometry services, since its cost of that property ran around 20% of revenue each year — below the 35% "de minimis serviceman" threshold in 86 Ill. Adm. Code 140.106.

The Department agreed with the ultimate result, though on a more direct legal basis. Under 86 Ill. Adm. Code 130.1980, optometrists providing prescription eyewear act as "servicemen" rather than retailers of tangible personal property. Section 2 of the Service Occupation Tax Act (35 ILCS 115/2) excludes the transfer of property incident to a service rendered by organizations operated exclusively for educational purposes. Because training students to perform eye exams and fit prescription eyewear is part of the College's core educational mission, the Department ruled that the College does not incur either Retailers' Occupation Tax or Service Occupation Tax on the prescription eyeglasses and contact lenses it provides through that clinical training. The College can also purchase the eyeglasses (or their components) tax-free from suppliers by providing its Department-issued exemption ("E-number") letter.

The ruling draws a clear line, however: items the College sells that are not transferred incident to the optometry service — such as non-prescription sunglasses, lens cleaning solution, and eyeglass cases — remain subject to Retailers' Occupation Tax when sold. The College can still buy those particular items tax-free from its own suppliers by issuing a Certificate of Resale (86 Ill. Adm. Code 130.1405), since it turns around and collects tax from its own customers on them.

Notably, the Department declined to rule on two of the taxpayer's alternative arguments — whether the eyewear transfers qualified as "charitable" sales or as "non-competitive sales" under 86 Ill. Adm. Code 130.2005 — because it didn't need to reach those theories once it concluded the transfers were nontaxable service transactions incident to an educational function in the first place.

What this means for you

Nonprofit educational institutions with clinical or training programs

If your organization is organized and operated exclusively for educational purposes and your students/staff transfer tangible personal property to the public as part of delivering a professional service (here, prescription eyewear as part of optometry training), that transfer may fall outside both Retailers' Occupation Tax and Service Occupation Tax under 35 ILCS 115/2 — as long as the transfer is genuinely incident to the educational service, not a separate retail sale. Make sure you hold (and can produce) an active Illinois exemption number, since suppliers will want that on file to sell your training materials tax-free.

Optometrists, opticians, and similar service providers

Illinois treats providers of prescription eyewear as "servicemen" under Service Occupation Tax rules (86 Ill. Adm. Code 130.1980), not as retailers of tangible personal property — that classification matters even outside the nonprofit context, since it changes which tax regime and rate applies (86 Ill. Adm. Code 140.126(c)(3) covers the reduced rate on prescription eyewear). Separately, sales of non-prescription items like sunglasses are ordinary taxable retail sales, so if you sell both prescription and non-prescription eyewear, expect to track them under different tax rules.

Accountants and tax professionals

This PLR is a useful illustration of how the Department analyzes "de minimis serviceman" facts (86 Ill. Adm. Code 140.106, 140.108, 140.109) but ultimately resolves the case on the narrower educational-exclusion ground in 35 ILCS 115/2, without needing to reach the de minimis, charitable, or non-competitive-sales arguments the taxpayer raised. Remember this ruling binds the Department only as to this specific taxpayer (the College) and only for the facts as represented — it expires 10 years from issuance or sooner if the law or facts change (2 Ill. Adm. Code 1200.110(e)).

Common questions

Q: Does the College have to collect sales tax on the prescription glasses and contacts it provides to patients?
A: No. The Department ruled that transferring prescription eyeglasses and contact lenses incident to the College's optometry training services is not subject to Retailers' Occupation Tax or Service Occupation Tax, because the transfer is part of the College's educational function.

Q: Can the College buy the eyewear materials tax-free?
A: Yes, for the prescription items used in its educational services — it should give suppliers a copy of the Department's letter confirming its active exemption (E) number. For non-prescription items it resells (like sunglasses), it can instead give suppliers a Certificate of Resale under 86 Ill. Adm. Code 130.1405.

Q: What about the non-prescription sunglasses, cleaning solution, and eyeglass cases the College sells?
A: Those are not treated as incident to the optometry service, so their sale remains subject to Retailers' Occupation Tax like any other retail sale.

Q: Did the Department decide whether these sales were "charitable" or "non-competitive"?
A: No. The Department expressly stated it took no position on whether the College's provision of prescription eyeglasses was for charitable purposes or qualified as a non-competitive sale — it didn't need to reach those questions once it found the transfers exempt under the educational-service exclusion.

Q: Can another optometry school or clinic rely on this ruling?
A: No. A PLR binds the Department only as to the taxpayer who requested it, and only if the facts given were complete and accurate. Other organizations with similar facts would need to request their own ruling or consult a tax professional.

Citations and references

• 35 ILCS 120/2 (Retailers' Occupation Tax Act — imposition of tax); 86 Ill. Adm. Code 130.101
• 35 ILCS 105/3 (Use Tax Act — imposition of tax); 86 Ill. Adm. Code 150.101
• 86 Ill. Adm. Code 150.130 (credit against Use Tax for Retailers' Occupation Tax paid)
• 35 ILCS 115/2 (Service Occupation Tax Act — exclusion for transfers incident to service by educational/charitable organizations)
• 86 Ill. Adm. Code 130.1980 (opticians/optometrists as servicemen for prescription eyewear)
• 86 Ill. Adm. Code 140.106 (definition of "de minimis" serviceman — under 35% cost ratio)
• 86 Ill. Adm. Code 140.108 (de minimis servicemen not required to register for Retailers' Occupation Tax)
• 86 Ill. Adm. Code 140.109 (de minimis servicemen registered for Retailers' Occupation Tax)
• 86 Ill. Adm. Code 140.126(c)(3) (service occupation tax rate applicable to prescription eyewear)
• 86 Ill. Adm. Code 130.120(h) (exemption for sales to organizations organized exclusively for educational or charitable purposes)
• 86 Ill. Adm. Code 130.2005 (exempt organizations — competitive sales); 86 Ill. Adm. Code 130.2005(a)(3)(C) (as cited in the request, re: nature/character of sale factors)
• 86 Ill. Adm. Code 130.1405 (Certificate of Resale)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures, including 10-year expiration under subsection (e))
• 2 Ill. Adm. Code 1200.120 (General Information Letters)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0006-plr.pdf

Original ruling text

ST 20-0006-PLR 10/08/2020 EXEMPT ORGANIZATIONS
This letter determines that an educational institution that provides optometry services as part of
its curriculum does not incur tax on the transfer of tangible personal property incident to the
providing of that service. See generally 86 Ill. Adm. Code 130.2005. (This is a PLR.)

October 8, 2020

Dear Xxxx:
This letter is in response to your letter dated September 26, 2019, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a tax
statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding
the topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
Review of your request disclosed that all the information described in paragraphs 1 through 8 of
Section 1200.110 appears to be contained in your request. This Private Letter Ruling will bind the
Department only with respect to COLLEGE for the issue or issues presented in this ruling and is subject
to the provisions of subsection (e) of Section 1200.110 governing expiration of Private Letter Rulings.
Issuance of this ruling is conditioned upon the understanding that neither COLLEGE, nor a related
taxpayer is currently under audit or involved in litigation concerning the issues that are the subject of
this ruling request. In your letter you have stated and made inquiry as follows:
We are requesting Private Letter Ruling on behalf of our client, COLLEGE, pursuant to 86 Ill.
Admin Code 1200.110. Pursuant to the regulation, we attest on behalf of our client the following:

1. The taxpayer is not under audit for any tax, nor is the taxpayer the subject of any pending
   litigation related to the request.
2. The requested ruling relates to Service Occupation Tax for periods open under the statute
   of limitation and going forward.
3. To the best of our knowledge, the Taxpayer and Representative are not aware of any
   contradictory authorities nor are we aware of any rulings covering the specific facts and
   questions addressed below.
4. Neither the taxpayer nor its Representative have previously requested a ruling from the
   Department of Revenue on this issue.
   Statement of Facts

ST 20-0006-PLR
Page 2

The Taxpayer is a not-for-profit educational institution located in CITY and organized for the
purpose of training Optometrists. As part of its educational function, doctors and students
provide eye examinations, prescription glasses and contact lenses as well as non-prescription
sunglasses to low income patients in the community. The Taxpayer has been issued and holds
an exemption for sales and property tax by the Illinois Department of Revenue, and thus has
demonstrated that it qualifies for the sales and use tax exemption. The Taxpayer is also
registered for sales and use tax and collects remits sales tax on its sales of non-prescription
sunglasses.
The College is located on the South Side of CITY and operates a clinic that provides eye
examinations, glasses fittings and contact lens to patients. Most patients are from the local area
and use a combination of Medicare, Medicaid, other state programs, grants and insurance
programs. The tangible personal property transferred incident to the service (lens, frames, and
contacts) therefore largely benefit low income patients as well as being used to train
optometrists.
The Taxpayer performed an analysis of its costs and revenues for the last three years and
determined that the cost price of tangible personal property transferred incident to it services
was approximately 20% each year. The Taxpayer considers itself a de minimis service man
who is also registered for Retailers [sic] Occupation Tax. We would be happy to provide
additional information on this analysis if needed.
Ruling Requested
The Taxpayer requests a ruling that its sales tax exemption applies to the Service Occupation
Tax obligation for de minimis servicemen who are registered for Retailers [sic] Occupation Tax
and that the Taxpayer does not owe Service Occupation Tax on the cost price of its materials
transferred.
Discussion and Relevant Authorities
The Taxpayer is not aware of any relevant authorities addressing the Use Tax or Service
Occupation Tax liability of a de minimis serviceman that holds an Illinois Exemption Number.
The Taxpayer acknowledges that the provision of prescription glasses and contact lenses would
be considered an Illinois regulation [sic]. 86 Ill. Admin. Code 130.1980 states that opticians and
optometrists who provide prescription eyeglasses and contacts are not engaged in the sale of
tangible personal property but should be considered servicemen under the service occupation
tax rules. 86 Ill. Admin. Code 130.1980
Section 140 of the Service Occupation Tax regulations divides servicemen into three categories
-- de minimis servicemen who are not required to be registered for Retailers Occupation Tax
(140.108), -- de minimis servicemen who are registered for Retailer’s Occupation Tax, (140.109)
and non-de minimis servicemen. “De minimis” in this context is defined as a serviceman whose
cost ratio of tangible personal property transferred incident to sales of services is less than 35%
of its gross annual receipts from all sales of service. 86 Ill. Admin Code 140.106. Generally,
optometrist who are de minimis servicemen registered as retailers collect the retailer’s [sic]
occupation tax on non-prescription eyewear and issue a resale certificate and pay service

ST 20-0006-PLR
Page 3

occupation tax on the sale of prescription eyewear (generally 1% plus and local taxes that apply
to food, medicines and medical appliances). 86 Ill. Admin. Code 140.126(c)(3).
Under 86 Ill. Admin 130.120(h), sales to organizations which are organized exclusively for
educational or charitable purposes are exempt from Retailers [sic] Occupation Tax. The
Taxpayer holds and exemption certificate issued by the State of Illinois and qualifies for this
provision.
Generally, when an exempt entity makes sales to the public, Illinois regulations provide that the
seller must collect sales tax from its customers unless an exemption is provided. 86 Ill. Admin.
Code 130.2005. One of these exceptions is non-competitive sales. While at first blush, this
appears to be a competitive sale as the Taxpayer is selling the same items as for-profit
businesses, the regulation allows the Department to consider further guidelines for the sales,
including the nature of the item sold and the character of the particular sale, and the real,
practical effect of punitive competition. 86 Ill. Admin. Code 13.2005(a)(3)(C).
We believe that the Taxpayer’s transactions should not be considered competitive sales and
that the Taxpayer should not be required to remit Service Occupation Tax on the transactions
for the following reasons:

1. The Non-Competitive Sales provisions are located within the Retailer [sic] Occupation
   Tax rules and contemplate the sales of tangible personal property. Illinois rules clearly
   categorize this transaction as a Service Occupation Tax transaction.
2. Under the Service Occupation Tax, the serviceman is deemed the taxable user of the
   tangible personal property transferred. The Taxpayer is entitled to purchase these
   items exempt from tax through an exemption certificate granted by the state.
3. The items being transferred are being used for both an educational and charitable
   purposes. The prescriptions and fitting of glasses serve an educational purpose. The
   recipients of the glasses, the patients of the Taxpayer, are largely indigent members
   of the community relying on state and federal aid to receive the glasses or contact
   lenses.
4. Even under the non-competitive sales rules, the Department may consider the nature
   of the transaction. As stated above, while the glasses transferred are the type of
   product that for-profit businesses provide, the nature of the customers suggests that
   they may be priced out of the retail market for these services and that the Taxpayer is
   providing a service that alleviates some of the demand for services on the local, state
   and federal government as contemplated in the Hospira decision.
5. The Taxpayer is registered and files ST-1 returns and collects and remits Retailers
   [sic] Occupation Tax on its sales of non-prescription eyewear. The requirement to
   remit Service Occupation Tax would not result in a great deal of additional revenue to
   the state (less than $4,000) but would detract from the educational and charitable
   function of Taxpayer.
   We respectfully submit that the Illinois Department of Revenue issue the requested ruling with
   the taxpayer information redacted. We further request that if the Department concludes contrary
   to the request that the Taxpayer be allowed to withdraw the ruling request. We are happy to

ST 20-0006-PLR
Page 4

provide any additional information or answer any questions the Department has. Please contact
me if there are any questions. A Power of Attorney has been submitted to the POA unit.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 35 ILCS
120/2; 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State,
any kind of tangible personal property that is purchased anywhere at retail from a retailer. See 35 ILCS
105/3; 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as “sales” tax in
Illinois. If the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the
time of purchase. The retailers are then allowed to reduce the amount of Use Tax they must remit by
the amount of Retailers' Occupation Tax liability which they are required to and do pay to the
Department with respect to the same sales. See 86 Ill. Adm. Code 150.130.
Section 2 of the Service Occupation Tax Act excludes the sale or transfer of tangible personal
property as an incident to the rendering of service for or by certain organizations such as those that are
organized and operated exclusively for educational purposes. 35 ILCS 115/2. We believe that the
provision of ophthalmic examinations and the provision of prescription eyeglasses as part of the
College’s educational curriculum falls within the performance of its educational function. The transfer
of tangible personal property incident to the providing of optometry services by the College is not subject
to tax because the training of students to provide such services is part of the College’s primary
educational purpose. The College would not incur either Retailers' Occupation Tax or Service
Occupation Tax liability on the transfer of prescription eyeglasses incident to the providing of optometry
services.
The College may purchase the prescription eyeglasses, or the components for prescription
eyeglasses, without incurring Use Tax or Service Use Tax liability. The College should provide the
supplier with a copy of the letter from the Department containing the exempt organization’s active Enumber at the time of purchase. However, the sale by the College of items that are not transferred
incident to the providing of optometry services would be subject to Retailers' Occupation Tax liability.
The items subject to tax would include such items as sunglasses, cleaning solutions for lenses,
eyeglass cases, or any other tangible personal property apart from the rendering of optometry
services. These items may be purchased by the College without incurring tax by providing its
suppliers with a Certificate of Resale. See 86 Ill. Adm. Code 130.1405.
The Department expresses no position on whether the College is providing prescription
eyeglasses for charitable purposes or is making non-competitive sales of prescription eyeglasses.
The factual representations upon which this ruling is based are subject to review by the
Department during the course of any audit, investigation, or hearing and this ruling shall bind the
Department only if the factual representations recited in this ruling are correct and complete. This
Private Letter Ruling is revoked and will cease to bind the Department 10 years after the date of this
letter under the provisions of 2 Ill. Adm. Code 1200.110(e) or earlier if there is a pertinent change in
statutory law, case law, rules or in the factual representations recited in this ruling.

ST 20-0006-PLR
Page 5

I hope this information is helpful. If you have further questions related to the Illinois sales tax
laws, please visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer Information
Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Chairman, Private Letter Ruling Committee
RSW: